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Implications for HR
ISSUE 2 - 2004

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The decision to offshore is often treated as a strictly financial one and because of this HR may not always be involved in the decision-making process of whether to offshore. Frequently HR is only brought in to take over the management of the offshoring process once the decision has already been made. Because the decision to offshore is so tied to both the people management practices of the organization and the morale of the existing U.S.-based workforce, it is important for HR to be involved in this strategic decision-making process.

HR is a critical player in the information-gathering process that helps to determine the business impact of offshoring. Assessing structural challenges that may pose difficulties in maintaining consistency across all operations, the level of control the business must be able to maintain over projects and the existing infrastructure of both the country, company and in some cases foreign contractors, as well as potential future changes within a country's economic or political climate are all responsibilities that may fall to HR.

Economic trends are particularly important indicators to watch. Most companies deciding to offshore are committed to having operations in the new country for at least several years. If wages are rising rapidly, as they are in some fields in India, the cost savings associated with offshoring may be lower over time as wages increase. Likewise, political changes could have an impact on the cost of doing business within certain countries.

Though the decision to offshore is driven by senior management, once the offshored operations are up and running their involvement usually tapers off, leaving HR to manage the continuing cultural and personnel challenges as they arise. Once the decision to offshore has been made, HR is responsible not only for managing the people management practices across all operations but for also managing the impact the decision to offshore has on the remaining U.S. employees.

It is this latter issue that may be the most crucial for HR to focus on. There is no doubt that the issue is an increasingly divisive one that could have a significant impact on employee morale. If employees feel in danger of being laid off as jobs are moved overseas, commitment and engagement are likely to be damaged. This is particularly important because job security is such a critical factor in job satisfaction. In SHRM's recent research on job satisfaction, job security consistently tops the list of the most important factors that determine employee satisfaction. With job security such an important issue, the threat of offshoring is likely to have a bigger impact on employee satisfaction and performance than many employers may realize. This could have financial implications resulting from higher turnover rates and lower productivity levels, especially during the time period that the offshoring process is taking place. It could also increase unionization–the top factor in the SHRM Job Security Survey that made employees feel insecure in their jobs was not being unionized. HR will need to take these kinds of issues into account when helping employers calculate the impact–financial and otherwise–of offshoring.

Aside from all of the issues related to the people management aspect to the offshoring process, HR practitioners also wonder how vulnerable they themselves are to the offshoring trend. There is some dispute about to what extent HR practitioners should be worried. One stance is that HR should feel just as vulnerable as accountants, architects, software engineers and other white-collar professionals. But another view maintains that the biggest changes in the HR profession will continue to be brought about by technology, rather than the threat of cheap overseas labor and argues that this will continue to have the most influence on both the role of the HR profession and the kinds of jobs that the HR professionals will be doing in the future.

One certainty is that the offshoring trend is not going to go away as either a factor in the employment landscape or as a topic of sometimes contentious debate. Even organizations that decide not to offshore will still feel the impact of the trend in some way because so many industries and businesses–customers, business partners and consultants–are likely to be involved in offshoring in some way. Because of this, even those companies without offshored operations may have to deal with a workforce that is increasingly concerned about job security and the resulting impact this has on employee motivation, performance, recruitment and retention. For HR practitioners this may be offshoring's biggest challenge. 

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